A few years ago, when I moved from MIT to Stanford, I was struck
by the prevalence of luxury automobiles. In Cambridge really flashy cars
were rare - even if you peeked into the garage of a large mansion you were
unlikely to see anything fancier than a Saab or a Volvo. In Palo Alto,
by contrast, it was Lexus and Mercedes territory wherever you looked, including
the driveways of fairly modest homes. Clearly the denizens of Silicon Valley
cared a lot more about their wheels than the people back East.

But last year, when I moved back to Cambridge, I discovered that
things had changed. Ostentatious cars had started to proliferate everywhere
- even in MIT's faculty parking lots. And I was surprised to realize that
this bothered me - not because I envied the people who could afford these
machines (oh, all right, I envied them a little), but because I had the
sense that something had gone wrong with the values of the place I used
to know.

Now at first sight this seems to be a deeply unprofessional reaction.
After all, economists are not supposed to be moralists. In his classic
1947 book Foundations of Economic Analysis MIT economist Paul Samuelson
retells the old joke about the Communist party official addressing a meeting
of the faithful. "Comes the revolution", he shouts, "everybody
will eat strawberries and cream!" A young man nervously objects that
he doesn't like strawberries and cream. "Comes the revolution",
replies the official ominously, "you will eat strawberries and cream
- and like it." Samuelson's point is that economists should not try
to tell people how to live their lives. I as an individual may despise
the music of Barry Manilow or the taste of Pepsi; but my job as an economist
is to help people who for whatever reason actually want to hear the one
or drink the other satisfy their desires. And in general, the most effective
way to satisfy people's wants is to leave it up to the free market - to
leave consumers free to choose the products they want, and producers free
to compete to make profits by providing them.

The only exception to this rule is when the actions of individuals
impinge adversely on the welfare of others. The slogan "free to choose"
does not mean that a factory owner should be free to choose to dump toxic
waste in a river. But a Mercedes is nothing like a polluting factory -
or is it?

Well, maybe it is. A Mercedes is a classic example of a status
good - an item that people buy, not so much for the direct satisfaction
it yields (they're good cars, but they're not THAT good) as for the statement
it makes about their wealth. An even better example is a Rolex watch, which
is no better at telling time than an ordinary $30 digital throwaway, but
marks its wearer as someone with money to burn. (Rolexes are pretty - but
in my experience the typical owner is not a man notable for his aesthetic
sensibility).

Now in general economists ignore the desire for status; they usually
adopt the working assumption that every man is an island - that his "utility"
depends only on his own consumption. Yet we all know that this just ain't
so - that the man who has almost everything can still feel deprived if
his neighbor seems to have even more. And for all of human history, those
who have it have sought to flaunt it, one way or another.

So what? If people want to show off, what’s wrong with that? The answer
is that when people try to use their money to buy status, as opposed to
such mundane things as comfort and convenience, they are engaged in a zero-sum
game: I can raise my status only by reducing someone else’s. When the Joneses
buy themselves a Lexus, they make the Smiths in their Ford feel worse about
themselves. And it is no use saying that the Smiths shouldn’t feel that
way: all the evidence suggests that the desire to one-up your fellow man
is hard-wired in the brain. As the cognitive psychologist Steven Pinker
points out in his new book How the Mind Works, status-seeking prevails
throughout the animal kingdom; a peacock has to grow his tail, while a
businessman can buy his Armani suit, but the principle is the same.

But once we concede that people do care about status, it necessarily
follows that the status competition that makes people buy expensive consumer
goods in order to impress other people constitutes a failure of the market
economy - a failure as real as traffic congestion, or pollution, or any
other activity in which the individual pursuit of self-interest leads to
a collectively bad outcome. Suppose that we could somehow agree to stop
competing over who has the fanciest car; everyone could then work a bit
less, spend more time with their families, and raise the sum total of human
happiness. Or to put it a bit differently, Americans (or at least the top
few percent of the income distribution) have gotten into a sort of arms
race of conspicuous consumption that, like most arms races, consumes huge
quantities of resources yet in the end changes little.

In short, concern over the growing emphasis our society places on material
display is not mere moralistic priggishness: it can be justified by perfectly
good economics. That is not to say that I have any proposals about to reverse
the trend. Ideally, I suppose, status competition could be channeled into
productive activities like community service, or charitable giving, patronage
of the arts, and so on, rather than into pointless display. But I have
no good ideas even about how to do that, except to urge the rich and influential
to set a good example - while I try to earn enough money to buy a better
car.